DeFi Token DIA's DEX Offering Shows the "New ICO" Comes With New Problems Too
Also, Aave issues its first unsecured loan, crypto fundraising picks up with Uniswap and Dapp Labs announcing deals.
Hello Defiers! Here’s what’s up in DeFi:
- DIA sale highlights DEX offerings’ issues
- Aave executes first delegated loan
- Crypto fundraising picks up
and more :)
If you’re receiving this email, that means you’re a paid subscriber of The Defiant, (thank you!) You’re getting the full content of this newsletter, while free subscribers are getting only a portion of it. Subscribers also get exclusive access to The Defiant’s Discord chat group for the community, here’s a new link to join.
🎙Listen to this week’s podcast episode with Olaf Carlson-Wee here:
📺 Also, The Defiant’s YouTube Channel Launched! New Video Out:
🙌 Together with DeversiFi, a professional-grade, self-custodial exchange.
Lessons From The First-Ever Initial DEX Offerings
Ethereum-based projects are increasingly skipping centralized trading platforms and listing their tokens on decentralized exchanges first. But the process isn’t always smooth and the DIA sale on Gnosis Protocol this week is the latest example.
Image source: DIA blog post
DEXs allow projects to list tokens without paying hefty fees required by CEXs and, because these protocols are permissionless, tokens are available for anyone in the world to trade. Liquidity pools —rather than order books— dominate these platforms, which facilitate the exchange of smaller coins. While ICOs and IEOs dominated crypto companies’ fundraising in the past, it seems that Initial DEX Offering are becoming the preferred method to distribute tokens and raise capital in DeFi.
But the method is still highly experimental and it’s only been three months since the trend started picking up steam, which means there are lessons to learn.
UMA, BZRX Front-Running
Synthetic assets platform UMA was one of the first IDOs, listing its token on Uniswap in April. UMA put 2% of total token supply and provided 535k$ of ETH into a liquidity pool for a starting price of 0.26$, the same that seed investors paid two years ago.
Image source: UMA blog post
But because token pricing on Uniswap works with a bonding curve, as investors lined up to buy the token, its price quickly moved up. Traders tried to front-run others, paying higher gas costs, and that led to UMA jumping to more than $2 minutes after the launch, before stabilizing at around $1.2, which made some buyers complain about getting a higher price than pre-sale investors.
bZx’s buyers ran into the same front-running problem on Uniswap. The lending platform’s token BZRX jumped 12x from its listing price less than 60 seconds after the Uniswap liquidity pool was seeded. The main winners were those running scripts to purchase BZRX in the same block it became available.
Ring-Trades to the Rescue
Gnosis Protocol’s Mesa exchange aims to solve the front-running issue plaguing these DEX offerings. Mesa uses a so-called ring-trade mechanism, where traders set a limit for the price they’re willing to pay so they get *at least* the price they asked for. When orders start coming in, they get filled in batches, instead of in the order they’re placed. Orders are settled on-chain, and then the next batch auction begins.
After seeing UMA’s and bZx’s experience, some issuers including for DMG and MTA tokens, listed on Mesa. But DIA proved the Gnosis-based exchange doesn’t guarantee a smooth listing.
DIA’s Troubled Sale
DIA, an open-source oracle platform, started its 14-day sale of 30M DIA tokens (15% of supply) on Aug. 3, with the initial price of $0.05. The first batch had an average price of $0.64. In a private sale 10M tokens were sold at $0.50.
An additional piece needed to understand what happened is that DIA used a bonding curve pricing mechanism to enable the determination of a fair market price. This allows buyers to buy and sell back instantly.
Also, the team said in its communications they would accept ETH, DAI and USDC, but only provided buy and sell orders replicating the bonding curve in USDC, expecting Gnosis Protocol would have enough liquidity for ETH and DAI through its liquidity providers.
No ETH Liquidity
But there wasn't enough ETH liquidity for high volumes which meant that ultimately the wETH/DIA price ended up being higher than the USDC/DIA price.
“The highest price difference between wETH and USDC occurred In batch 4: a wETH buyer purchased at 1.50 USD tokens worth USD 309,729 while USDC buyer acquired worth USD 55,724 tokens at USD 1.21, leading to a spread of 23,87% in that transaction,” DIA founder Paul Claudius told The Defiant.
The result is disgruntled ETH/DIA buyers. They are upset enough to have formed a separate Telegram channel in which they have even come to discuss the possibility of legal action.
It may be of some relief to those buyers thatDIA’s price has more than doubled just in the past day, and with the token now trading at $2.2 they could get the chance to break even or more likely, sell at a profit.
Image source: Dune Analytics
Claudius says he feels responsible for what happened, and “regrets the way he reacted,” as the project’s initial blog posts didn’t acknowledge ETh buyers’ frustration, saying the mechanism worked as intended. He says a big lesson learned is to more clearly communicate how the different providers they’re working with work and their risks.
Gnosis co-founder Martin Koppelmann told The Defiant an improved interface should make it easier for more market makers to participate in Mesa listings the future.
“I am pretty sure in the next sale more market makers will be attracted,'“ Koppelmann said. “For issuers/ sellers - I think they should either sell for multiple tokens or let buyers know that they are selling only for one token and if they want to buy with another token they need to rely on liquidity in Gnosis Protocol.”
Liquidity Providers Made a Killing
The big winners of the day were liquidity providers.
“Every liquidity provider for WETH/USDC profited from the lack of liquidity,” Koppelman said. “One trader alone made >$100k in a few hours.”
Aave Issues $500k Unsecured Credit Loan to DeversiFi
Aave christened its credit delegation feature by issuing a $500,000 unsecured line of credit to the Layer 2 DeFi exchange DeversiFi.
Aave @AaveAaveToday marks a historic moment with the first Credit Delegation on Aave Protocol to @deversifi 🚀 @OpenLawOfficial was used to conclude the loan agreement 🌟 medium.com/aave/first-cre…
medium.comFirst Credit Delegation on Aave Protocol to DeversiFi is Here 🔥During this year DeFi has grown from a few hundreds of millions to a few billions in locked value (TVL). Locking value into DeFi allows…4:53 PM ∙ Aug 6, 2020582Likes162Retweets
Users can deposit Aave’s interest-earning aTokens as collateral and delegate their borrowing power to a trust party using smart contracts. When entering an agreement, the two parties sign an on-chain OpenLaw contract detailing the terms of the credit line, including the borrowing rate and credit limit. More on how credit delegation works here.
Using the credit line, DeversiFi exercised their option by borrowing 20 WBTC to be used as liquidity in their growing Starkware DEX, which uses zk-Snark technology to offer real-time settlement with transactions averaging $0.003 - less than 1000x cheaper than current gas price on Ethereum’s base layer . The full details of the agreement can be found here.
“DEXs like CEXs always need liquidity,” Aave COO Jordan Lazaro Gustave told The Defiant. “They started with a relatively small amount, but this can help empower a lot of DEXs as they need liquidity for various features of their own product.”
After releasing its 2.0 upgrade “for serious traders” in the beginning of June, DeversiFi has averaged between $1-2M in AUM on any given day. Given its focus on high-frequency trading, liquidity is key and this credit line is a great way to usher in more capital from a trusted third party.
Credit Delegation Vaults can be opened by anyone, but currently only favor Solidity developers savvy enough to deploy a Credit Delegation Proxy.
Aave will eventually incorporate Credit Delegation into their interface, but for now it appears that Andre Cronje and yearn have stepped up to offer a front-end for users to collateralize and borrow against Credit Vaults using yborrow.finance.
Fundraising in Crypto is Picking up Amid Bull Market
Crypto projects are taking advantage of improving market sentiment to close deals, and investors are lining up. Just yesterday, at least four crypto companies announced they raised a combined $27M in funding from big VCs including Andreessen Horowitz, Union Square Ventures, well-known dedicated crypto funds like Coinbase Ventures, BlockTower and Paradigm, and even NBA stars.
Here are the deals:
Uniswap Raises $11M in Series A Round Led by a16z
Uniswap, the biggest Ethereum-based DEX by trading volume, raised $11M in a Series A funding round led by Andreessen Horowitz. USV, Paradigm, Version One, Variant, Parafi Capital, SV Angel, and A.Capital also invested.
“This investment round will help us grow our team to build Uniswap V3, which will dramatically increase the flexibility and capital efficiency of the protocol,” Uniswap founder Hayden Adam wrote in a blog post.
The funding round follows Uniswap’s seed round of over $1M, led by venture fund Paradigm in April 2019.
Dapper Labs Raises $12M in Funding from NBA Stars
Dapper Labs, the maker of CryptoKitties which is now developing the new Flow blockchain, said it raised $12M from investors including NBA players and top crypto funds. NBA stars in the round include Andre Iguodala, Spencer Dinwiddie and Garrett Temple. Funds participating include Andreessen Horowitz, Union Square Ventures, Accomplice, Coinbase Ventures, A.Capital, BlockTower Capital and Blockchange Ventures, among many others.
“The funding from this round will ensure Flow can scale to the size of projects appealing to fan bases as vibrant and demanding as the NBA and our other partner brands including Dr. Seuss, UFC, and Warner Music. Flow lets fans join the economy of their passions in a way that wasn't possible before crypto," said Roham Gharegozlou, founder and CEO of Dapper Labs, in a press release.
Alpha5 raises more than $1.5 million in seed round: The Block
Alpha5, an upcoming crypto derivatives exchange, has raised more than $1.5 million in seed funding, founder Vishal Shah told The Block. The round saw participation from several venture capital and trading firms, including FBG Capital, CMT Digital, Altonomy, SNZ Holding and Nima Capital, as well as existing investor Polychain Capital.
IDEX Raises $2.5M to Rebuild Hybrid Exchange for Algorithmic Traders: CoinDesk
The Ethereum-based hybrid exchange said Thursday the $2.5 million would go to launching IDEX 2.0, a new, more liquid platform, CoinDesk reported. The money came in a seed round led by G1 Ventures and Borderless Capital, with other commits from Collider Ventures and Gnosis.
DeFi Saver Launches Interface for Aave
Here’s the great thing about composability: One project is able to create an interface for an entirely different project, adding new features and design.
DeFi Saver yesterday introduced a new interface for users to manage their portfolios on lending platform Aave. The platform allows users to increase leverage or pay back debt in one transaction. The DeFi portfolio manager plans to introduce automation int the coming weeks.
DeFi Saver @DeFiSaverOur fully fledged @AaveAave dashboard is NOW LIVE!🥳 💻New interface for Aave portfolio management 🚀1tx Boost & Repay available for Aave for the first time ever 🤖Automation support coming soon!™️ Full introduction: medium.com/defi-saver/int…
medium.comIntroducing the DeFi Saver Aave dashboardStarting today you can fully manage your Aave portfolio using DeFi Saver!🎉5:33 PM ∙ Aug 6, 2020189Likes55Retweets
Hermez is Latest zk-Rollup
A heads up about the latest Layer 2 solution that’s being developed to help scale Ethereum dapps: Hermez, the zk-rollup born out of Iden3’s labs.
From their blog post:
- A zk-rollup using SNARKs for validity proofs and with on-chain data availability
- Able to scale Ethereum to 2000 transactions per second
- It’s being built by the team who built the Circom and SnarkJS libraries that power Tornado Cash, Semaphore and Zkopru, among others.
- It’s being built after a couple of iterations in the Goerli testnet.
Dan Robinson of Paradigm has an ironic take on an attack on Ethereum Classic.
Dan Robinson @danrobinsonI was told that this was the immutable chain https://t.co/GidrGkF9u9
CoinDesk @CoinDeskBREAKING: Ethereum Classic has suffered a 4,000-block long reorganization, its second such incident in five days. @eth_classic @sebsinclair1989 https://t.co/t1kLqM1gzE5:19 AM ∙ Aug 6, 2020304Likes25Retweets
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access at $10/month or $100/year, while free signups get only part of the content.
About the founder: I’m Camila Russo, author of The Infinite Machine, the first book on the history of Ethereum. I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.